Why purpose doesn’t have to override profit

03 June 2020 Consultancy.uk 5 min. read

The growth of environmental, social and governance (ESG) factors in business and the growing popularity of B Corporations ‘doing well by being good’ is illustrative of the rise of purpose-driven business models. While many people believe purpose may cannibalise on profit, Tim Johnson, Senior Vice President at Somo, explains why the two can in fact be complementary.

From a pessimistic viewpoint, a lot of businesses are operating today with an inherently flawed mentality, growth and short termism at any cost. Blinded by the need to appease the shareholders, businesses have moulded quarterly results around having to hit a certain point to ‘survive’. 

But if we want to have long term businesses, we must temper the desire for growth. There must be a balance between growth and sustainability. And purpose has a large role to play here. 

Remembering your other stakeholders

When you are examining your company’s purpose, what you’re actually doing is examining structurally what you are doing with your business and how you define success, whether that’s steady growth or immediate profit. Why purpose doesn’t have to override profitIt is not slanderous to suggest that many businesses today prioritise shareholder return above everything else. But shareholders are only one part of the company’s suite of stakeholders. There are other people and parties to consider. 

Workers, for example, and their motivations, safety, and rewards in every business should be fundamental. After all, they make the choice to come back every morning. Customers are also your valued stakeholders; they are buying, selling, and trading with you.

Then there’s the wider set of stakeholders; the community and the environment. The value of a company is just as much about the employment of the local sector and doing right by the environment as it is about passing money to shareholders. 

Having stakeholders who share your purpose

So, when looking at these different groups and assessing what makes a business successful, it is crucial to understand how these stakeholders can be better served by what you are doing with the business and defining your purpose. If you are a sheet metal manufacturer, your purpose should not be beating malaria; you’ve got to understand what your business does holistically across all stakeholders, and then assess where you can make an impact. 

B Corps do this very well by challenging the traditional ways of doing business. For example, Finisterre, the outdoor apparel company based in Cornwall, became a certified B Corporation in January 2018. Its bikinis and boardshorts are made from part-recycled fishing nets and office carpet tiles, all served in marine biodegradable packaging. 

Most recently, Finisterre raised a £4 million investment for expansion. But the most impressive part? It was entirely crowdfunded in under two weeks. Talk about the power of the people! Finisterre has the sea and sustainability ingrained in its purpose, and it is obvious to see that the company wanted stakeholders who were aligned with its values.

You could argue Finisterre always had a strong purpose, knowing exactly who the business was for – environmentally-conscious people with a connection to the sea – and therefore making it much easier to articulate this purpose and recruit stakeholders accordingly. This is harder to do if your business’s purpose is just financial returns to shareholders. 

Putting profit where it matters

Purpose is not about forgoing profit. It is about where you put that profit to achieve objectives where you have stated purpose. If you look at the example of TOMS – a very well-known and well-walked track (pardon the pun) of giving products away for every product made. But this is not the only way to ‘do’ purpose. 

It is about making choices, not always the easiest or most obvious ones, to utilise profit in a new way. This could be investing back into employees and implementing new ways to treat and engage your workforce in an honest and fair manner. It could be about having an effect on the local community and doing some social good and justice. It could be improving the quality of the product to have a more positive effect on your customers, or the environment and contributing to supporting environmental issues. 

The key thing to remember is that purpose should still be clearly measured with outcome and effect. This might not be a quantifiable number, but rather it could be a qualitative impact. This may require a greater shift in thinking about how we audit our business and assess successful outcomes. 

So, who’s in charge?

Purpose is not just for new agile start-ups with charismatic CEOs with narrative-like entrepreneurial journeys. Legacy brands and businesses can still participate in purpose, and it must be led from the top. Strong CEOs are needed to explain why the company’s purpose is what it is and communicate this to all stakeholders. Any company can look at its core values and act.